The COVID‐19 pandemic and the internationalization of production: A review of the literature

Abstract

Summary Motivation The COVID‐19 pandemic has substantially altered the context for cross‐border business. This is reflected in trade flows but also affects the conditions for conducting dispersed production functions across countries. This “new normal” period presents the need to examine the main problems/challenges in international trade and business. Purpose The article aims to establish the scope, aspects and implications of the COVID‐19 pandemic on international trade and on international production by reviewing recent articles which deal with international trade and global value chain (GVC) issues, changes that were already taking place and the challenges that began in 2020. Methods and approach The findings of recent articles on trade flows and changes in GVCs (mainly the period 2019–2021) are described in theoretical terms, compared and systematically reviewed. Special focus is given to the impact of the pandemic on GVCs, re‐nationalization and GVCs and the impact of the pandemic on GVC governance, and GVCs in the production of vaccines for the COVID‐19 virus. Findings Trade recorded a drop in 2020, accompanied with the introduction of protective trade policy measures. Reduced GVC activities had a negative impact on welfare and the “re‐nationalization” of GVC‐related activities is not a real solution. For the development of GVCs it is important to find a trade‐off between efficiency and resilience, starting with re‐organization (re‐engineering) of GVCs, and probably focusing on regional frameworks. Liberal trade policies are essential to ensure the involvement of GVCs in producing the COVID‐19 vaccines since the various inputs are produced in different countries. Policy implications The possible directions for the future development of GVCs are elaborated: re‐shoring, resilience in supply chains, adjustments in governance, diversification and development of risk‐management strategies. The process of internationalization is not in question, but presents challenges which create the need for adjustments in its future development. Current problems with vaccine production arise in part from imposed trade barriers and rising nationalism. There is a need for greater cross‐country co‐operation to avoid placing national short‐term interests before long‐term and broader objectives.

The potential for cascading failures in the international trade network

“…This mirrors the previously mentioned overall trend in the supply chain, which is shifting from globalization to regionalization before the COVID-19 pandemic [35][36][37][38]. Many multi-national companies that previously relied on China as a supplier of intermediate parts began diversifying their supply chains in nearby countries due to the US-China trade dispute starting in 2018 [36,39]. This shift may have contributed to an expansion of mutual influence and changes in load sensitivity between countries within the East Asia & Pacific and Europe & Central Asia regions, respectively.…”

A decisional framework for manufacturing relocation: Consolidating and expanding the reshoring debate

“…Examining the broader perspective, the pandemic has accelerated discussions on relocation, resilience, diversification, risk management, and governance as key trajectories for GVC development (Kersan‐Škabić, 2022). While many of these topics were in discourse even before the pandemic, the crisis expedited their evolution (Elia et al., 2021).…”

Smart, Sustainable and Socially Valuable: How Digital Textile Microfactories can Contribute to a Brighter Future

“…In the past years, the COVID-19 pandemic was another important issue which had a significant impact on different industries including the TCI. This unprecedent pandemic has caused disruptions in global value chains and complicated the transportation of intermediate products, resulting in significant losses for many multinational companies and a subsequent decline in global GDP (Kersan-Škabić 2022). This has further accelerated preexisting issues in the supply chain such as shortening of the value chain, refocusing on regional trade links instead of global value chains and reshoring activities (Kersan-Škabić 2022), bringing priorities such as digitalization to the fore (Zhao/Kim 2021).…”